BLG 2015 Canadian Financial Institutions Regulatory Outlook

2014 was another year of considerable regulatory change for Canadian financial institutions. In recent years, Canadian regulators have been focused, to some extent, on adapting the initiatives of international bodies with regulatory responsibilities to the Canadian regulatory environment, and so we start with an outlook into the expected activities of these bodies in 2015.

FINANCIAL STABILITY BOARD (FSB)

In a November 2014 communiqué of Mark Carney, the Chairman of the FSB, he noted that the job of agreeing on measures to fix the fault lines that caused the last financial crisis is now substantially complete. He indicated that strengthened international standards are building more resilient financial institutions and more robust markets. This means the FSB will adjust its focus towards addressing new and constantly evolving risks and vulnerabilities. For 2015, areas of work include developing a common international standard on the total loss absorbing capacity of globally systemic banks; an industry agreement to overcome the lack of a global framework to prevent cross-border counterparties taking their money before others when a bank needs to be resolved; and an agreement to prevent cross-border derivative contracts being disruptively terminated in the event of a globally systemic bank entering resolution. Mr. Carney also indicated that in 2015, the FSB will begin an annual reporting process on implementation of reforms by G-20 members. In addition, the FSB will begin the reporting of implementation progress on shadow banking reforms, drawing on monitoring and peer review work undertaken by relevant monitoring bodies.

BANK FOR INTERNATIONAL SETTLEMENTS (BASEL COMMITTEE ON BANK SUPERVISION)

With the backing of the G-20, the Basel Committee on Bank Supervision has a very active program to promote greater consistency in the implementation of global standards, and improved transparency of instances where national differences exist. Areas on current consultation leading to potential further reforms include revisions to the standardized approach for credit; capital floors: the design of a framework based on standardized approaches; fundamental review of the trading book; criteria for identifying simple, transparent and comparable securitizations; net stable funding ratio disclosure standards; and reducing excessive variability in banks' regulatory capital ratios.

In the November 2014 speech at the Federal Reserve Bank of Chicago, Mr. Stefan Ingves, Chairman, Basel Committee on Banking Supervision and Governor, Sveriges Riksbank, noted that a major issue is how to ensure that global systemically important banks have sufficient capacity to absorb losses in resolution, without having to ask taxpayers to foot the bill (total loss absorbing capacity). In addition, he noted that ensuring consistency in the implementation by member countries of risk-based capital standards will therefore be a key factor in restoring confidence in banks and the Committee is thus assessing bank capital ratios with a view to ensuring that they...